> "For background, we have clear guidelines for any business that uses PayPal to accept donations."

That doesn't appear to be true. This post lays out the actual content of the relative PayPal policies:

http://thegreengeeks.wordpress.com/2011/12/06/why-paypal-is-...

and assuming the screenshots are not doctored, those policies do not seem to be particularly clear, nor do they say that documentation is required other than for officially registered non-profits.